Gea Group Ag Ord

Good afternoon, ladies and gentlemen, and thank you for joining us today for our first quarter 2024 earnings conference call. With me on the call are Stefan Klebert, our CEO, and Bernd Brinker, our CFO. Stefan will begin today's call with the highlights of the first quarter. Bernd will then cover the business and financial review before Stefan takes over again for the outlook 2024. Afterwards, up the call for the Q&A session. Please be aware of the cautionary language that is included in our safe harbor statement as in the material that we have distributed today. And with that, I hand over to Stefan.

Thank you very much, Oliver, and a good afternoon, everybody. It's my pleasure to welcome you to our conference call today. Before I start with the highlights of the first quarter, I would like to congratulate Bernd for his contract extension. I'm sure you have read that. Last week, the supervisory board has decided to extend the appointment of Bernd as chief financial officer until end of June 27. I'm very pleased for this decision, and dear Bernd, I'm very much looking forward to continuing our excellent working relationship. The market environment in the first quarter of 2020 has not materially changed since the last quarter of 2023. We are still facing high interest rates, negative FX development, and geopolitical uncertainties. But once again, we have delivered organic sales growth and a strong EBITDA margin expansion. We have continued our profitable growth journey. In our last conference call, we indicated that order intake in the first quarter of 4 will not match last year's record order intake in Q1, which was almost at 1.6 billion euro. The current decline in Q1 is therefore in line with our expectations. And since we are still seeing postponements of orders, order intake declined organically by 9.7%. On a reported basis, this decrease has been at 13.6% because of negative currency translation effects. However, sales rose organically by 2.7% in line with our full-year guidance of 2% to 4% organic sales growth. EBITDA before restructuring expenses increased by 5.1% year-over-year to $181 million. euro despite lower sales. The corresponding EBITDA margin rose significantly by 103 basis points from 13.5 percent in Q1 23 to 14.5 percent in Q1 24. Return on capital employed decreased slightly by 0.8 percentage point to 32.3 percent which is however still an excellent value. Let me now provide you with an update on our share buyback program. As you know, this program amounts to up to 400 million euro will run until early 25. The first launch of the program with a volume of 150 million euro was launched on 9th of November and is supposed to run for six months. Until 31st of March, we already bought back 3.1 million shares worth 111 million euro in total. As of May 7th, though the most up-to-date figure, we have already repurchased 3.8 million shares and spent 135 million euro. This means that we are approaching the end of the first tranche. As there are just 15 million euro left to be spent under the first tranche, it is a clear that we have completed this tranche soon and we will, as you might have read, start soon with a second tranche with a volume of 250 million euro. GEA is clearly a sustainability pioneer. And we have underpinned this role once more by being the first member of the DAX index family to conduct a say on climate vote. At our general meeting, we took place last week. We gave our shareholders a say on our climate protection activities. More specifically, we asked them to approve our Climate Transition Plan 2040 as part of a consultative vote. And the result was outstanding. 98.44% of our shareholders approved our plan. This is an outstanding achievement and confirms that our shareholders support our transformation to a net zero company. We firmly believe that climate action is not only urgently called for, but also pays off economically. Only companies that consistently act sustainably can remain competitive in the long term. With that statement, I hand over to Ben. Thank you, Stefan. Good afternoon, ladies and gentlemen. On the back of the record order intake in last year's Q of almost 1.6 billion euro, the order intake declined as expected year over year by 13.6% to 1.37 billion euro in Q1 2024. But important to notice that it improved sequentially from the levels seen in Q3 and Q4 last year. despite a good project pipeline postponements of orders and here especially large orders continued two large orders with the total value of 51 million euro were received in this quarter in comparison to five large orders totaling 126 million euro in q1 2023 q1 2024 was another quarter of attractive profitable growth Sales was up by 2.7% year over year on an organic basis. This was driven by strong organic service sales, while organic new machine sales slightly declined. EBITDA before restructuring margin increased by 103 basis points to 14.5% because of a higher gross profit margin and lower operating costs. Return on capital employed declined slightly from a very high level of 33.1% to 32.3% since the improvement in EBIT before restructuring expenses wasn't enough to compensate for the higher capital employed resulting from an increase, especially in net working capital. Net liquidity decreased year over year by 56 million Euro to 218 million Euro. Please bear in mind that we invested hundred and eleven million euro in the first of our share buyback buyback program. Looking a bit into the group performance similar to the last quarters, the top line of one. I am talking about order intake and sales was adversely impacted by translational FX effects due to a strong Euro against some of our main currencies. Order intake was negatively impacted by 62 million Euro translational FX effect, which together with the lower amount of orders above 5 million explains most of the year over year decline. Food and healthcare technologies has been reporting an organic order intake growth, while the other divisions saw a decline on the back of a very strong, in many cases even record, prior year quarter. From a customer industry perspective, food and once again pharma were growing. When we look at the sequential order intake development, there are two messages. First message, Order intake in Q1 2024 was up by more than 100 million euro quarter on quarter. Second, all order size records showed a positive sequential development. Sales grew organically by 2.7%, driven by once again strong organic service sales growth of 9% year over year, to which all divisions contributed. This is now the 15th consecutive quarter with organic service sales growth. New machine sales, however, have been muted, declining organically by 1.1% year over year in the quarter. The divisional performance has been a bit mixed here. While the new machine business at separation and flow, farm and heating and refrigeration technologies has been growing nicely organically, liquid and powder as well as healthcare technologies reported a decline. Due to the strong service sales growth, the service sales share stood at 38%, one percentage point higher than last year. This service sales share marks a new record level. EBITDA before restructuring expenses rose by €9 million to €181 million, resulting in a corresponding year-over-year margin expansion of three basis points to 14.5%. Now, let me continue with the figures for the division separation and flow technologies, which reported solid organic sales growth and significant EBITDA margin improvement. On the back of a record order intake in Q1 2023, the order intake decreased organically by 5.3% year-over-year. Please mind that the prior year quarter contained a large order of €24 million in chemicals for lithium processing equipment. Therefore, the year-over-year decline is mainly resulting from the customer industry's chemical and dairy processing, while food and beverage were growing. When looking at the order intake development on a reported basis, an adverse translational FX impact of 31 million euros to be considered. Organic sales grew by 5.2% year over year, driven by solid growth rates in both new machine as well as service sales. The organic service sales growth would have been, however, higher if we hadn't had a change of a logistics provider as part of our move into a new logistics center. Problems that occurred during this change were caused by our pump and led to a temporarily slower service sales recognition in Q1 with postponements to the coming quarters, predominantly to the second quarter 2024. The order intake in service, however, has been growing year over year. As a result of the temporarily lower service sales growth, the service sales share declined on a very high level by 1.5% to 42% in the quarter. This is expected to positively reverse already in Q2 2024. The profitability impact resulting from the lower service sales share has been offset by a scheduled sale of a property in the United States. As a result, EVTA before restructuring expenses increased by two million to ninety six million euro and the corresponding EVTA margin improved further on a high level by one point five percentage points to twenty seven percent. Let's move on to liquid and powder technologies. Order intake for the quarter was down organically by 21.6% compared to a strong prior year's quarter, mainly driven by a decline in orders above 15 million euro. Liquid and PowerG's has received one large order of 31 million euro from the customer industry beverage this quarter versus four large orders of 102 million euro in Q1 2023. While the customer industry's food and pharma showed a positive development in this quarter, all other industries reported a decline. Important to notice that the order intake has stabilized sequentially, up from the level in Q4 last year. Sales declined slightly by 0.7% year-over-year on an organic basis. Service sales continued its strong growth trajectory of the previous quarters with an outstanding 15.7% year-over-year organic growth rate, marking now the fifth quarter in a row with double-digit service growth rates. At the same time, organic new machines decreased by 5.7%. The lower new machine sales results from a decline in the order intake in the second half of 2023, as well as in the first three months of 2024. Due to the strong service sales growth, the service sales share increased by 3.6 percentage points to a record level of 26.9% in the quarter. EBITDA before restructuring expenses decreased by 4 million euro year over year to 26 million euro resulting in a corresponding EBITDA margin of 6.8% down from 7.8% in Q1 2023. Slightly higher gross profit resulting from the improved service sales share has not been enough to compensate for the increase in operating costs. Continuing with food and healthcare technologies, order intake for the quarter was up in organic as well as in reported terms, which is a very encouraging development. The year-over-year growth was driven by orders below €1 million and a large order of €20 million in the customer industry pharma. Not surprisingly, the custom industry pharma showed a positive development this year, while the food industry reported a decline. Sales decreased by 2.6% year over year, despite a very strong organic service sales growth of 8.8%. The service business has been growing organically by 15 quarters in a row now, raising the service share from 27% in Q3 2020 to 36% in the first quarter of 2024. The new machine sales declined organically by 8.1% from the lower order intake in freezers. as well as in processing lines for the food industry in the second half of 2023. As you know, the profitability of food and healthcare technologies had been impacted by the execution of insufficiently priced projects in the last quarters and, as expected, we are still seeing a small impact in Q1. EBITDA before restructuring expenses by 3 million euro year over year and the respective margin dropped from 10.4% in Q1 2023 to 9.5% in the quarter. However, when we're looking at it sequentially, the profitability has improved continuously since the second quarter of 2023. While the EBITDA margin has been as low as 6.1% in Q2 2023, we reported a quarter-on-quarter improvement to 6.8%, followed by 7.2% in Q4, and now 9.5% in the first quarter of 2024. As stated in previous conference calls, we are optimistic to bring the business back on track within the second half of 2024, and we are targeting for the full year and EBITDA margin between 9.5% and 11%. A strong improvement compared to the 7.6% in financial year 2023. Moving to farm technologies. The first quarter of the year is showing strong organic sales generation and significant margin EBITDA margin expansion. But let me give you some details on Q1 here. As you might remember, we have stated several times that the environment for our damming business is quite mixed. On the one hand, the farmers are facing higher financing costs. But on the other hand, there is this unbroken trend for optimization and consolidation. On the back of a record level for orders in the prior year quarter, order intake declined organically by 14.7% year over year. Also, sequentially, the typical quarter-on-quarter improvement from Q4 to Q1 has been announced as the years before, and the market sentiment is still affected by the uncertainty, mainly caused by high interest rates and lack of subsidies, which are now expected for the second half of 2024, but also by the very wet weather conditions in large parts of Europe. In terms of products, farm technologies had slight order intake growth year over year in the service business. New machine order intake declined, especially in manure and automated milking carousels, due to the lack of larger orders. When looking at the order intake development on a reported basis, an adverse translational FX impact of €70 million needs to be considered. Sales has been virtually unchanged in reported terms, but increased organically by 10.4% yearly. The strong organic sales growth has been driven by both outstanding service sales growth of 14% and strong new machine sales growth of 7%. The service share increased further on a high level by 0.3 percentage points to 47.8%. Gross profit rose significantly due to the consistent implementation of price increases in the last months and a high service sales share. The increase in gross profit overcompensated higher operating costs, resulting in an EBITDA improvement of €4 million to €27 million in the quarter. The corresponding EBITDA margin increased significantly by 198 basis points from 12.5% in Q1 2023 to 14.5% in Q1 2024. Finally, let us turn to heating and refrigeration technologies. This division delivered again strong organic sales growth and a significant EBITDA improvement. Also, heating and refrigeration technologies faced a high comparison base for order intake in the first quarter of the year because the prior year quarter had an unusual high volume of orders above 5 million euro. The year-over-year organic order intake decline of 11.6% was purely driven by the reduction of these large orders. Base orders, that means orders below 5 million euro, have been up year-over-year. In terms of customer industries, food had a good demand, while most other industries reported a decline. Sales continued its growth trajectory, and the division reported for the 11th quarter in a row a year-over-year organic growth. An 8% organic growth rate was driven by both a solid new machine sales growth rate of 4.2% and a strong service sales growth rate of 8.4%. Since the service business was growing stronger, the service sales share increased by 82 basis points to 39.2%. EBITDA rose to 19 million euro and the according margin improved significantly from 11.8% in the Q1 2023 to now 13.4% this quarter. Gross profit was up year over year due to the higher volume, positive mix, and margin effects, which overcompensated the increase in operating costs. Closing the divisional chapter now with the overview on the EBITDA growth contribution. There are two important messages. We have been able to increase our EBITDA before restructuring expenses by 9 million euro. The positive EBITDA growth contribution, separation and flow, farm and heating and refrigeration technologies overcompensated the profitability decline of the two other divisions. This shows once again the resilience and strength of our business model due to our product diversification. Let me give you some additional background information on the positive growth contribution from the other and consolidation line. The year-over-year change in EBITDA is mainly attributable to the allocation of centrally incurred expenses in line with causation, leading to a higher cost burden on the divisions. And the second important message is that translational FX has been a drag on our reported EBITDA. It has lowered our EBITDA 6 million euro in the quarter. excluding this fx translational effect our ebitda would have been improved it would have improved by 14 million euro from 172 72 million euro in q1 2023 286 million euro in q1 2024. coming now to another important topic which is net working capital As years, the first quarter is showing the typical seasonal uptake in net working capital from year end. This quarter on quarter increase is driven by a reduction in trade payables, as well as a slight increase in inventories. In a year over year comparison, net working capital increased by 88 million euro to 457 million euro, despite a significant reduction in inventories of 64 million euro. Trade yields have increased, which is not surprising to see as we are facing a tougher economic environment for receivables management due to the higher interest rates. The decrease of trade payables needs to be seen in connection with the reduction of inventories. In Q1 2023, the inventory level was on a high level due to the creation of risk buffers to mitigate the potential risk of material shortages. The subsequent reduction of inventory, especially at liquid and powder and food and healthcare technologies, led to a decrease of trade payables between Q1 2023 and Q1 2024. This development is well covered by our guided corridor of 8 to 10% as the net working capital to sales ratio landed at 8.6%. Like in the previous years, free cash flow has been negative in the first quarter of the year. But let's have a look at the details. Operating cash flow was negative 42 million euro, which can be explained by the following factors. Firstly, the net working capital outflow because of the quarter on quarter build up. Secondly, the 82 million Euro outflow in others. This position contains the outflow of bonus payments for fiscal year 2022. As you all know, again, a very successful year. In addition, we paid out the second and final tranche of the inflation compensation payment to all employees in Germany, which accounted for roughly 10 million euro. The capex related outflow of 27 million euro has been rather low in comparison to our full year 2024 guidance of around 260 million euro. So the step up will be seen in the coming quarters. As a result, free cash flow stands at minus 57 million euro, leading to a net cash flow of minus 78 million euro after deducting lease payments and interests paid. The negative net cash flow in combination with the cash out for our ongoing share buyback program reduced the net cash position from 371 million euro at the end of Q4 2023 to €218 million at the end of Q1 2024. Hence, the typical seasonal net cash reduction in the first quarter of the year has been more pronounced this year due to the additional cash outflow for the share buyback program. With that, I hand back to Stefan for the outlook. Thank you, Bernd. Let me now cover outlook for the fiscal year 24. After a solid start into the year with further organic sales growth and excellent margin development, we confirm our full year 24 guidance. Organic sales growth of between 2% and 4%, and EBITDA margin expansion to a level between 14.5% and 14.8%. and the return on capital employed in the range of 20 to 34%. In our last conference call, I mentioned that we will hold our next Capital Markets Day on 1st and 2nd of October. Let me now share some more details with you. On the evening of October 1st, we will invite you to an informal dinner at Ron's Gastro Bar in Amsterdam, Ron's Gastro Bar, is known for its culinary entrepreneurial dishes and we are looking forward to spending a nice evening with you there amongst other things we will serve new food which is produced by our customers the next day will consist of two parts first presentations on strategic topics held by my colleagues and my myself in the morning and second in the afternoon a site visit at our customer innocent in Rotterdam. As you know, we have built the world's carbon neutral juice production plant for them at the harbor in Rotterdam. And we are offering you the opportunity to see our machines and engineering solutions live in action on their premises. The formal invitation to the event will follow in due course. Finally, our roadmap 24. The next important date will be the release of our Q2 figures on August 7th, and then the market stay on 1st and 2nd of October in Amsterdam and Rotterdam. We are looking forward to see you there. This concludes my presentation, and I hand back to Oliver for the Q&A session.

Yeah, thank you very much, Stefan and Bernd. And over to you, Sarah, and please be so kind and open up the lines for the Q&A.